My 4 month old gets that. I think it's from spitting up/drooling. I wash her up with plain water a few times a day and that helps it go away. I keep a bib on her and change it often, but sometimes it shows up anyway. Sometimes I can position her head after she's asleep so that air gets in there, but my other kids are school aged so I have time to just sit with her in my arms... from your picture I'm guessing you might not have the luxury but if you get a chance it's something to try.
~Teresa, raising DS (Jan. 02) and DD1 (Jun. 04) and DD2 (Dec. 11) with DH.
my ds has some serious chins and had the same problem. used coconut oil. worked great. just wash with warm water, apply some coconut oil and do extra tummy time so her neck gets some air as she tries to hold up her head :) my ds constant neck rashes went way down once i started doing this once a day, and then they disapeered completely at around 4 months once he was holding his head up more.
I have read that corn starch actually feeds yeast so I would avoid that. I agree with coconut oil and as much air/dryness as possible, even if that means blowing it dry with your mouth after wiping the area clean.
My DD got this in the backs of her knees and sometimes her elbows--the other posters are right, it has to do with moistness. But avoid cornstarch because it will feed yeast. Here is what we did: try to dry off those areas really really well after baths; oil massage before baths to help shed the water and heal the skin (we used sesame oil because my Indian husband & in-laws insist that it's best for your skin, but anything is fine); if it got really bad and diaper-rashy looking, put a little coat of diaper cream on before bed (though only in areas covered by clothes, where she couldn't get her little hands on the cream).
Diaper cream will heal it fast, usually overnight, depending which cream you use. The best natural ones that I've found are Boudreaux's Butt Paste (the natural kind in the green bottle) and Desert Essence Organics Don't Be Rash Cream. The hands-down best, if you get really desperate and don't mind going non-natural, is Desitin. It's kinda gross (smells like fish oil) but will heal red rashes the fastest of anything I've seen.
You can also buy non-talc baby powder and that probably helps keep dry, too.
Mom to the wacky and wonderful Kalyani (August 2011)